Miller–Orr cash model

Management sets a minimum cash balance. Given the variance of daily net cash flows, a fixed transfer cost and a daily opportunity-cost rate, the model determines a spread between control limits. In the standard formulation, spread = 3 × [3Fσ²/(4i)]^(1/3), upper limit = lower limit + spread, and return point = lower limit + spread/3. At the upper limit, invest enough to return to the target; at the lower limit, obtain enough cash to return there. The return point is not the midpoint. Model assumptions and reliable input estimates remain necessary.